Paramount pay-TV concessions to end geo-blocks?

The European Commission has made pay-tv contract concessions offered by Hollywood studio Paramount legally binding under EU antitrust rules. The concessions address the Commission’s concerns regarding clauses in film licensing contracts for pay-TV between Paramount and Sky UK that forbad Sky from letting EU citizens outside UK view the content and made Paramount responsible for preventing any other EU broadcaster having the content.

These clauses prevented Sky UK from allowing EU consumers outside the UK and Ireland to access films via satellite or online. They also required Paramount to ensure that broadcasters other than Sky UK are prevented from making their pay-TV services available in the UK and Ireland. Paramount has now committed that it will neither act upon nor enforce these clauses in existing film licensing contracts for pay-TV with any broadcaster in the European Economic Area (EEA). It has also committed to refrain from (re)introducing such clauses in film licensing contracts for pay-TV with any broadcaster in the EEA.

The Commission’s concerns

US film studios typically license audio-visual content to a single pay-TV broadcaster in each Member State (or combined for a few Member States with a common language).

The Commission sent a Statement of Objections in July 2015 setting out its preliminary view that certain clauses in film licensing contracts for pay-TV between Paramount (amongst other studios) and Sky UK breach EU antitrust rules. These clauses (a) required Sky UK to block access to Paramount’s films through its online pay-TV services (so-called ‘geo-blocking) or through its satellite pay-TV services to consumers outside its licensed territory (UK and Ireland) and (b) required Paramount to ensure that broadcasters outside the UK and Ireland are prevented from making their pay-TV services available in the UK and Ireland.

Such clauses restrict the ability of broadcasters to accept unsolicited requests (so-called ‘passive sales’) for their pay-TV services from consumers located outside their licensed territory. The Commission had concerns that this may eliminate cross-border competition between pay-TV broadcasters and partition the EU’s Single Market along national borders.

Paramount’s commitments

In April 2016, Paramount offered commitments in order to address the Commission’s concerns. The Commission then consulted market participants to verify the appropriateness of the proposed commitments.

In light of the results of this market test, the Commission is satisfied that the commitments, as clarified by Paramount, address its concerns and has made them legally binding on Paramount:

When licensing its film output for pay-TV to a broadcaster in the EEA, Paramount will not (re)introduce contractual obligations, which prevent or limit a broadcaster from responding to unsolicited requests from consumers within the EEA but outside of the broadcaster’s licensed territory (no ‘Broadcaster Obligation’);

When licensing its film output for pay-TV to a broadcaster in the EEA, Paramount will not (re)introduce contractual obligations, which require it to prohibit or limit broadcasters located outside the licensed territory from responding to unsolicited requests from consumers within the licensed territory (no ‘Paramount Obligation’);

Paramount will not seek to bring an action before a court or tribunal for the violation of a Broadcaster Obligation in an existing licensing agreement;

Paramount will not act upon or enforce a Paramount Obligation in an existing licensing agreement.

The commitments will apply throughout the EEA for a period of five years and cover both standard pay-TV services and, to the extent that they are included in film licensing contracts for pay-TV with a broadcaster, subscription video-on-demand services as well. The commitments cover both online services and satellite broadcast services. Finally, the commitments also contain a non-circumvention clause, as well as clauses on the review of the commitments and the appointment of a monitoring trustee.

The Commission also sent a Statement of Objections in July 2015 to five other film studios (Disney, NBCUniversal, Sony, Twentieth Century Fox and Warner Bros) and Sky UK. It set out the Commission’s preliminary view that each of the studios and Sky UK have bilaterally agreed to put in place similar contractual restrictions in breach of EU antitrust rules. The Commission’s investigation continues regarding the five other studios and Sky UK.

Article 9 of the EU’s Antitrust Regulation (Regulation 1/2003) allows the Commission to conclude antitrust proceedings by accepting commitments offered by a company. Such a decision does not reach a conclusion on whether EU antitrust rules have been infringed but legally binds the company to respect the commitments. If Paramount were to breach the commitments, the Commission could impose a fine of up to 10 per cent of Paramount’s total annual turnover, without having to find a violation of the EU competition rules.